An Evaluation of Methods to Provide Financial Stability As a Person Ages
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University of Nebraska at Omaha DigitalCommons@UNO Student Work 11-1-1998 An Evaluation of Methods to Provide Financial Stability as a Person Ages J. Terrence. Haney University of Nebraska at Omaha Follow this and additional works at: https://digitalcommons.unomaha.edu/studentwork Recommended Citation Haney, J. Terrence., "An Evaluation of Methods to Provide Financial Stability as a Person Ages" (1998). Student Work. 1907. https://digitalcommons.unomaha.edu/studentwork/1907 This Thesis is brought to you for free and open access by DigitalCommons@UNO. It has been accepted for inclusion in Student Work by an authorized administrator of DigitalCommons@UNO. For more information, please contact [email protected]. AN EVALUATION OF METHODS TO PROVIDE FINANCIAL STABILITY AS A PERSON AGES. A T h e sis Presented to the . Department of Gerontology a n d th e Faculty of the Graduate School University of Nebraska In Partial Fulfillment of the Requirements for a Master of Arts Degree University of Nebraska at Omaha b y J. Terrence Haney November, 1998 UMI Number: EP73547 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI EP73547 Published by ProQuest LLC (2015). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest* ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106 -1346 THESIS ACCEPTANCE FOR J. TERRENCE HANEY Acceptance for the faculty of the Graduate College, University of Nebraska, in partial fulfillment of the requirements for the degree Master of Arts, University of Nebraska at Omaha. C om m ittee < L . Chairperson D ate / / <C~ Abstract Interviews with financial planners, investment bankers, trust officers, and retired persons were conducted in order to make an evaluation of methods to provide financial stability as a person ages. Emphasis was made on Medigap and Long-term Care Insurance Policies and investment of lump sum retirement distributions. The financial planners recommended that retired persons, not eligible for a continuation of employer health insurance, purchase Medigap or HMO coverage to supplement Medicare. The financial planners also recommended purchase of Long-term Care Insurance. Information provided by investment bankers and trust officers indicated that retirement funds invested in Equity or Fixed Income Investments with minimum withdrawals will provide a lifetime income for retired persons. Interviews with retired persons confirm that they do have financial security because of taking minimum withdrawals from their accumulated assets and with the purchase of Medigap Insurance when there was no continuation of employer health insurance. Retired persons indicated a general lack of interest in Long-term Care Insurance except when peace of mind could not be achieved without it. The survey and other information provided prove the hypotheses that lifetime financial security is attainable. Table of Contents SECTION I: THE PROBLEM Page No. Introduction.............................................................................................. 1 Purpose of the Study....................................... 4 Importance of the Study................................................. 5 Hypothesis ............................................................I ................................ 6 Hypothesis II............................................................................................ 6 Definition of T erm....................................... s 6 Outline of the Remainder of the Proposal..................................8 SECTION II; REVIEW OF THE LITERATURE O verview...................................................................................... 9 Historical Background........................................................................9 Recent Literature.................................................................................11 SECTION III: METHODOLOGY Research Design.................................................................................. 15 Selection of the Subjects..................................................................15 Expected Findings............................................................................... 15 Procedures .................................................................................16 Data Collection.....................................................................................17 Limitations 18 SECTION IV: INTERVIEW RESULTS Long-term Care Insurance........................... 19 Medigap Insurance............................................................................ 21 Investment Strategies........................................................................23 Retiree Interviews ...........................................................................30 SECTION V: RECOMMENDATIONS Long-term Care Insurance............................................................. 36 Medigap Insurance............................................................................ 37 Investment Strategy...........................................................................39 C o n c lu sio.............................................................................................. n 39 R E FE R E N C E S....................................... 41 1 S ection I The Problem In a speech before the Boettner Institute, Matilda White Riley (1990), an Associate Director for Behavioral and Social Research of The National Institute on Aging talked about the fallacy of inevitable aging decline. She said that: “Much research has demonstrated that the doctrine of inevitable aging decline is a fallacy; a fallacy initiated by faulty interpretation of cross-sectional data. Nevertheless, despite all evidence to the contrary, this fallacious doctrine is still blindly accepted by many government policy-makers, corporate executives, professional practitioners and the public at large. The stereotype of inevitable decline remains stubborn. The very notion of aging seems to connote decrepitude, poverty and misery. Physicians are found to spend less time with older patients. Old people, themselves, take their aches and pains for granted and assume - falsely - that they cannot learn new skills or ways of thinking.” There are many joys left in life, in the opinion of this author, if older people continue to learn and remain physically active. This thesis should illustrate that prudent investments with lump sum retirement benefits and adequate health insurance can help older people avoid the poverty referred to in the aforementioned speech. One of the joys of living in the late 20th century is the likelihood of 2 living a long life. According to Coles (1992), the older population is getting older. In 1989, there were 18.2 million people ages 65 to 84. That was 8 times as many people in that age group as there were in 1900. But that same year there were 9.8 million people who were ages 75 through 84. That was 13 times larger than the 1900 crowd, and there were 3 million people age 85 and older. The latter figure was 24 times the people in that age group that existed in the year 1900. Currently, a person aged 65 can expect to live another 17.5 years according to the Walker (1997) Life Expectancy Chart. If our destiny is to lead a good long life, then most of us want to be financially secure during our years of retirement. The majority of us would like to remain reasonably independent with a mature interdependency with our families and friends. Fortunately, according to Haber (1994), households headed by persons age 55 to 74 clearly dominate contemporary wealth distributions. This wealth may be necessary because of the longer lives we are destined to lead as cited above. Walker (1997) says that until recently, most pension plans were of the defined-benefit type that provided a certain percentage of an employee's income for the rest of his life after retirement. Brown (1996) 3 tells us that defined-contribution programs are becoming more and more popular as compared to the defined-benefit program. In a defined- contribution plan the employee makes the investment decision. Brown feels that too much of the risk is placed on an individual participant who has inadequate knowledge and experience to make strategic retirement investment plan decisions. Walker (1997) talks of a “looming retirement crisis” because an increasing number of participants bear the responsibility for directing investments in their own defined-contribution plan. Walker (1997) tells us that 40 IK plans are the fastest growing type of retirement saving and, of course, a 40IK plan consists of a defined- contribution plan in which the participant directs the investment. Walker (1997) tells us that twenty years ago, it was common for an employer to make some provision for an employee to continue to be covered under a group health insurance program after retirement. He tells us that Statement of Financial Accounting Standards Number 106, which was promulgated in December, 1990, forced employers to accrue the cost of future retiree health claim costs on the company balance sheet. In addition, the present value of future costs were